Tech-sector-driven growth and productivity paradox

Israel's high-tech sector has become the dominant engine of the country's growth and export performance, now accounting for roughly 15 percent of GDP, about 43 percent of total exports, and a quarter of all income tax collected, despite employing only around one-tenth of the workforce. Bank of Israel governor Amir Yaron has pointed to this sector as the reason Israel has led OECD countries in GDP growth by a notable margin in recent years, driven especially by a surge in services exports from software, semiconductors and artificial-intelligence-related firms. Yet that same concentration creates a measurement and policy puzzle the Bank has flagged: a significant share of recent headline growth traces to a handful of multinational operations, such as chipmakers, setting up large Israeli units, so growth excluding these firms would be noticeably lower, and productivity gains have not spread evenly into the rest of the economy. The result is a two-speed structure in which tech-driven exports and tax revenue support the broader fiscal and external accounts, while much of the non-tech economy lags behind in productivity growth.